'Invisible sector' facing headwinds

By Barry Silverberg and Robert Manzer

Updated 6:55 pm, Thursday, August 16, 2012

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'Invisible sector' facing headwinds

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The nonprofit sector is facing major headwinds. Facing local, state and national governments dealing with large budget deficits, nonprofits around the country are confronting reduced funding, increased regulation, contracting problems, and - most significantly - taxation. The latter began in Boston, which now asks its largest nonprofits to pay 25 percent of what they would pay if they paid real estate taxes. This approach is now sweeping Eastern cities and moving into the Midwest. The taxation is referred to with the euphemism Payments in lieu of taxation, or PILOTs.

Much of what is happening to nonprofits in the rest of the country has not come to Texas. However, PILOTS have surfaced in Houston (during the drainage fee debate), and other Texas cities have indicated their interest in using them to raise revenue. It's thus worth pausing to reflect on why this is happening now. Is the taxation of the nonprofit sector simply the consequence of the large budget deficits? Or is the sector's vulnerability the result of deeper causes? A fair response to these questions must acknowledge that scandals, skepticism and the erosion of public trust have hurt the standing of nonprofits in recent years.

But the sector's current vulnerability to taxation is largely a result of its invisibility. Such invisibility results from the fact that individual nonprofits tend to be much better known than the sector as a whole. Meals on Wheels and the Boys and Girls Clubs of America are well known and visible, but the sector tends to be invisible to the public mind, especially in comparison with business and government. Our common formulation of public sector (government) and private sector (business) reinforces the nonprofit sector's invisibility by excluding it altogether. The nonprofit sector may be a pillar upon which the community rests but not many people truly see it that way. And this is true despite the fact that for much of our history, the sector was recognized as a distinctive and organic part of our national heritage.

Indeed the sector was once understood as the natural outgrowth of the nation's novel origins in equality and liberty. Lacking a rigid hierarchical social order, America was the first society in human history to truly esteem common men and women who knew "no betters"; common men and women who took responsibility for themselves and their communities. This novel arrangement, it was observed, produced an explosion of energy and activity, much of it commercial but much of it focused on taking on community challenges.

Americans thus became known for an "art of association" that distinguished them from all peoples at that time and still does today. In addition to focusing them on improving their communities, this art was seen to have other positive effects, emboldening and tempering their individualism and serving as a bulwark of freedom against the new threats of majority tyranny and an expansive state. So important was this art of association, in fact, that no less an authority than Alexis de Tocqueville remarked that "civilization" itself depended on its continued progress.

Revisiting these roots helps us see more clearly the nature of our communities. They rest on multiple pillars, including those of business, government and the nonprofit sector. Being mindful of these pillars, we need to do a better job of recognizing each for the value it brings. To see the value of the nonprofit sector isn't hard. Imagine your communities without all of the nonprofits that are active within it. It should be pretty clear; they're not the same places.

The rise of nonprofit taxes will produce a positive result if it leads ultimately to a better appreciation of the nonprofit sector as a central support of our communities. Simply put, circumstances have reached a point where the nonprofit sector cannot continue to be invisible.

The good news is that Texas is leading the pack in moving to greater recognition of and respect for the nonprofit sector as such. Confronting the same fiscal crises as other states, Texas state agencies have taken the novel approach of recognizing and partnering with the nonprofit sector. In the form of two legislative-mandated task forces on strengthening the nonprofit sector and improving how state government works with it, Texas agencies are engaging the sector in the public policy process in a new and vital way. This way seeks to leverage state and nonprofit assets and strengths in meeting the needs of Texans.

We will be dealing with the large budget deficits for many years to come, and there will be many disagreements over policies and priorities along the way. But a true path forward surely begins by seeing our communities as they truly are. Recognizing how they rest on the pillars of private businesses, government agencies and nonprofits is a good first step down that path.

Silverberg is president and CEO of the Texas Association of Nonprofit Organizations (TANO), one of 37 statewide associations of nonprofits affiliated with the National Council of Nonprofits that together form the largest network of nonprofits in the United States. He is also the co-chair (with Bee Morehead of Texas Impact) of the legislative-mandated task force on improving the relationship of governments and nonprofits. Manzer is senior consultant for public policy at TANO.